Markets shot out the blocks this week with the FTSE 100 clocking its best ever start in its 37 year history.

The premier index has climbed more than 6 per cent in the first four sessions this year after a rotten 2020 when the market plummeted by 14 per cent – its worst performance since the financial crisis.

To the average person in the street, the current investor optimism may seem misplaced given the sky high coronavirus infection rates across the UK and scenes of anarchy in the United States. 

The FTSE 100 has climbed more than 6 per cent in the first four sessions this year after a rotten 2020 when the market plummeted by 14 per cent

The FTSE 100 has climbed more than 6 per cent in the first four sessions this year after a rotten 2020 when the market plummeted by 14 per cent

The FTSE 100 has climbed more than 6 per cent in the first four sessions this year after a rotten 2020 when the market plummeted by 14 per cent

But one analyst explained that the stock market is not a bet on a company’s performance today, but how it will perform three to six months down the line.

Neil Wilson, analyst at Markets.com, said: ‘Business is usually upbeat – it is, after all, about making money. The stock market is forward looking. It’s not a bet on today but a bet on tomorrow.’

The undoubted driving force behind the FTSE 100’s rise has been the vaccine roll-out which is the fourth fastest in the world, with only Israel, Bahrain and Kuwait moving quicker.

That means the UK could exit the pandemic by the spring, although a more realistic target is midsummer for a return to semi-normality.

Should this target be reached then struggling businesses in the retail, hospitality and travel sectors should quickly be able to rebuild sales, profits and their workforces. 

Other reasons for optimism include the Brexit trade deal, which was finally agreed on Christmas Eve, and President Trump losing the US election.

The major blue-chip risers so far this year have included retailer Next, up 7.7 per cent, and on the FTSE 250, travel firm Tui which has added 8.4 per cent.

A good bet… or big bubble? 

‘UK has largest per capita stockpile of vaccine doses. Four years of Brexit uncertainty is at an end. We’re bullish on the UK.’ – Savvas Savouri, chief economist of Toscafund Asset Management 

………………………………………………. 

‘Extreme overvaluation, explosive price rises, hysterically speculative behaviour… one of the great bubbles of financial history.’ – Jeremy Grantham, GMO co-founder

Other stocks to have made hay include banks, miners and oilers. HSBC has added 7.9 per cent this year, Standard Chartered is up 8.5 per cent while BP has gained 14 per cent and Shell 12 per cent.

They have been helped by president-elect Joe Biden promising to turn on the spending taps and OPEC agreeing a cut in oil production which has sent Brent Crude prices soaring.

Predicting what will happen in 2021 is paved with pitfalls but analysts say the FTSE 100 could hit 7000 this year, a rise of 20 per cent, while the most optimistic say 8000 is possible.

Savvas Savouri, economist at hedge fund Tosca, believes the large amount of personal savings built up in 2020 could also boost the economy and stock markets. 

He said: ‘Hundreds of billions in household and corporate spending has been suspended in 2020. This pent-up demand will be injected into the UK economy. 

In varying ways, consumption and investment was held back awaiting closure on Brexit. Evidence suggests that foreign direct investment into the UK has itself been held back over recent years.’

But before investors become too gung-ho, it is worth noting some experts think that markets are in a bubble and are heading for a spectacular fall this year.

They include Jeremy Grantham, the British co-founder of the US investment group GMO, who successfully called the crash in 2008 and the dotcom boom in 2000.

He has taken aim at Wall Street, describing it ‘as an epic bubble’, but his words could also have ramifications here.

‘Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behaviour, I believe that this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000,’ he said.

Grantham, 82, pointed to Tesla as an example of the over-exuberance that currently pervades the global markets. 

The undoubted driving force behind the FTSE 100's rise has been the vaccine roll-out which is the fourth fastest in the world, with only Israel, Bahrain and Kuwait moving quicker

The undoubted driving force behind the FTSE 100's rise has been the vaccine roll-out which is the fourth fastest in the world, with only Israel, Bahrain and Kuwait moving quicker

The undoubted driving force behind the FTSE 100’s rise has been the vaccine roll-out which is the fourth fastest in the world, with only Israel, Bahrain and Kuwait moving quicker

He wrote to investors: ‘As a Model 3 owner, my personal favourite Tesla titbit is that its market cap, now over $600billion, amounts to over $1.25million per car sold each year versus $9,000 per car for GM. What has 1929 to equal that?’

He added that the investment industry was structurally incapable of preventing bubbles.

‘Every career incentive in the industry and every fault of individual human psychology will work toward sucking investors in,’ he said.

Others to urge caution include investment bank Citigroup which warned world markets will hover around current levels. The bank was sceptical that vaccines would lead to a return to normality this year, adding that fresh waves and mutations continue to hold economies back.

Whether you’re an optimist or realist, 2021 won’t be for the faint-hearted.

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This post first appeared on Dailymail.co.uk

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